As cryptocurrency is gaining momentum in India, people are showing more and more interest in such investments. Given the precarious status of the legality of cryptocurrency, it becomes imperative to have proper knowledge about the laws and regulations in such a situation to avoid inadvertent legal blunders. There are several laws for the taxation of cryptocurrency in India, including TDS regulations. The Finance Bill, 2022, made TDS deduction mandatory on crypto transactions, which has been in effect since 1 July 2022. This article simplifies for you the TDS regulations that apply to crypto transactions and helps you navigate through the legalities involved in such transactions.
See also: What is TDS certificate?
Cryptocurrency and TDS: Understanding the terminology
TDS, standing for Tax Deduction Source, is levied on various types of financial transactions and refers to a specified amount that the payer is liable to deduct during the time of making the payment and remit to the government. The new Finance Bill of 2022 has taken in the ambit of TDS all Virtual Digital Assets (VDAs), that include crypto as well.
The current regulations state that the buyer is liable to deduct TDS at the rate of one percent if the value of a single crypto transaction in a financial year exceeds Rs 50,000. While it is mandatory to remit to the government this specified value from the total transaction, this regulation only applies to purchase and sale of crypto and not on its transfer between wallets. This also helps in the keeping of official records of crypto transactions and the failure to comply with TDS regulations might result in legal consequences for the buyer.
Understanding TDS regulations on crypto transactions
There are largely two scenarios wherein the buyer is liable for TDS during a crypto transaction. Let’s take a look at the specific regulations when it comes to applying TDS to crypto:
Person-to-person (P2P) transactions
In case of an individual purchasing cryptocurrency using Indian currency over a P2P platform meant for this purpose or an international exchange, you are not required to deduct TDS. However, if you are selling cryptocurrency in exchange for Indian currency, you will be required to comply with the specified regulations and remit one percent of the total transaction value to the government.
Crypto-to-crypto transactions
If paying for the purchase of crypto with another crypto, you will be required to pay TDS that amounts to one percent of the value of the currency used for the purchase. Similarly, a TDS of one percent of the value of the crypto being sold is applied to the seller in Indian currency.
Other crypto taxation laws
Alongside TDS laws on the sale and purchase of crypto, there also exist other taxation laws that individuals are required to follow. Following are the types of transactions that are taxed at 30%:
- Paying and receiving crypto for purchase goods or services
- Exchanging one type of cryptocurrency for the another
- Exchanging crypto for Indian currency or any other fiat currency
- Receiving crypto as a gift
- Mining (verification and recording transactions on a blockchain network)
- Airdrops (distributing crypto tokens for free to enhance liquidity)
- Receiving crypto as salary
- Staking and forging of crypto
Implications of non-compliance with TDS laws
Not adhering to TDS regulations during crypto transactions might result in penalties and legal consequences for the defaulter. The penalty can amount to the value that the individual was liable to deduct for TDS during the transaction. Moreover, in case of late payments, the joint commissioner can levy a 15 percent interest rate per annum. Alongside heavy penalties and fines, the defaulter can be penalised with prison sentence between three and seven years.
FAQs
Is cryptocurrency taxable in India?
Yes, crypto transactions are subject to taxation in India. This includes TDS during sale and purchase and other taxation laws.
Which law levies TDS on crypto in India?
The Finance Bill effective from 1 July 2022 levies a TDS on all virtual digital assets, including crypto.
What is the TDS rate for cryptocurrency?
The TDS rate for cryptocurrency transactions is set at one percent.
Does TDS apply on purchase of cryptocurrency using Indian rupee?
No, the buyer is not liable to pay TDS in case of the purchase of crypto using the Indian rupee.
What are the TDS regulations for the sale and purchase of crypto using crypto?
In this case, the buyer is liable to pay one percent of the equivalent transaction value in INR of the crypto used for purchase, while the seller needs to pay the equivalent valuation of the crypto being sold at the same rate.
What is the tax rate for crypto in India?
Several cases of crypto transactions are taxed at 30% according to the law.
What are the consequences of not following crypto TDS regulations?
The failure to comply with TDS regulations might result in heavy penalties and prison sentence ranging between three and seven years.
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Riddhi Chatterji is currently pursuing a master’s degree in English literature from University of Delhi. Her meticulous attention to detail and the desire to make a learning experience out of every opportunity has allowed her to work with different forms of textual content for digital platforms, ranging from social media to news desks. When not working or studying , you can find her with her head buried in a book, discovering new music and movies, or out and about exploring the city on the metro.
